Memo to WSJ DealJournal re: Facebook/Goldman

Long-time reader, first-time responder. I’ve enjoyed the point-counterpoint between your Mean Street and Dealpolitik columns re: the Facebook/Goldman deal but I feel that the real issue is being skirted by both of you.

You guys make important points about the detriment to public markets from this arrangement and the subjectivity of the term “fairness”. However, I think the most troubling aspect of this “private public offering” has yet to be addressed: The unfairness to OTHER companies besides Facebook.

The larger debate, the one about the present and future of capital formation, has not yet been had. Facebook’s private IPO is yet one more example of companies, mostly in technology, raising seemingly limitless amounts of capital in the private markets. This in and of itself is a good thing.

But when these so-called private securities begin to be traded back and forth on unregulated exchanges, what we’ve essentially done is allowed a select group of hyper-sophisticated and wealthy investors to act as though they are living on their own little Indian Reservation – with a de facto exemption from the securities laws that the rest of us are subject to.

By “us” I am not pulling the poor, small investor card. I am referring to the “us” that also seeks to raise money, develop businesses and curry investor interest. How can a non-social media or a non-wireless app company possibly compete for capital with the allure of banking and trading deals that are done outside the burdensome sphere of regulation and the strictures of traditional money-raising?

In short, the Goldman/Facebook private IPO is unfair – not to the the public investor, but to the entrepreneur seeking investors who does not have a 94304 zip code.